Remuneration
Cases
Irish Bank Resolution Corporation Limited -v- Morrissey
[2014] IEHC 527
Finlay Geoghegan J.
“29. Counsel for the defendant submits that the right to prosecute and continue these proceedings against the defendant, is a statutory power and/or right of the special liquidators and is not a right title interest or benefit of IBRC, and so was not and cannot be transferred to Stone pursuant to the deed of transfer.
30. Counsel for the defendant relies upon a judgment in the English High Court of Ramsay J. in Ruttle Plant Ltd. v. Secretary of State for Environment, Food and Rural Affairs (No. 3) [2008] EWHC 238 (TCC), [2009] 1 All ER 448 and in particular para. 43 which he contends supports this proposition.
31. The facts of Ruttle are complex. However, essential facts relevant to a proper understanding of the passages relied upon by the defendant is that the liquidator of F had assigned the fruits of proceedings and also assigned the rights which he had to commence and conduct those proceedings. They were proceedings to be brought by F. However, importantly, the liquidator of F did not assign the underlying property or asset of F giving rise to the proceedings, and did not assign F’s cause of action.
32. Having considered the relevant English authorities, Ramsay J took the view that there was no objection in English law to the liquidator assigning the fruits of proceedings. However, he considered the assignment of the liquidator’s rights to prosecute and carry out the action or proceedings to be objectionable, and at para. 43, stated:
“[43] In my judgment the reason why the assignment is objectionable is because the liquidator is assigning the rights he has under the 1986 Act and is thereby assigning a discretionary power which, being part of the statutory powers of a liquidator, is personal to the liquidator, just as is his appointment: see Re Sankey Furniture Ltd. ex p Harding [1995] 2 BCLC 594 at 600. The intention in this case, as demonstrated by the deed, is that the liquidator’s right to prosecute and carry on the action is passed to a third party so as to deprive the liquidator of any control or ‘interference’ in those proceedings. In such circumstances I respectfully adopt what Lightman J said in Grovewood Holdings plc v James Capel & Co Ltd [1994] 4 All ER 417 at 425 [1995] Ch 80 at 89: ‘I cannot see how a liquidator can properly or at all surrender his fiduciary power to control proceedings commenced in the name of the company’.”
33. He then continued in the next two paragraphs to clearly distinguish between what he considered to be objectionable on the facts in Ruttle from a factual situation in which a liquidator exercises a power of sale of the property of the company and an intrinsic part of that sale is the right to commence or continue proceedings:
“[44] There is an apparent inconsistency between the position where the bare cause of action is assigned and the position where the fruits of the action are assigned, with the control and the funding of the proceedings being carried out by the assignee. As raised at first instance in Re Oasis Merchandising Services Ltd (in liq) [1995] 2 BCLC 493 if a liquidator is entitled to sell a bare cause of action then he can by that route divest himself of all control. It is therefore argued that, if he could do so in the case of the assignment of a bare cause of action, why could he not do so on an assignment of the fruits of the action? I consider that there is a difference. When a bare cause of action is assigned as part of a sale of the property of a company, the liquidator is thereby exercising the power of sale granted to him and an intrinsic part of that sale is the right to commence or continue those proceedings. In the same way, a sale of property would include, as an intrinsic part of the sale, any cause of action together with a similar right to commence or continue proceedings.
[45] In this case, the assignment of the fruits of the action does not include either the bare cause of action or the right to commence or continue proceedings. Any rights in relation to proceedings are given separately by reference to the liquidator’s powers.”
34. Applying the above principles to the facts herein, Counsel for the defendant submits that what the special liquidators are purporting to do is to assign the statutory power given to them pursuant to s. 10(1) of the Act of 2013, and s. 231(1)(a) of the Companies Act 1963, as modified by the Act of 2013 in relation to the special liquidators which is not permissible.
35. Counsel for the applicants submits that in Ireland, as in England, in accordance with the case law and statutory regime, there is a distinction to be made between, on the one hand, property of the company and related causes of action which have arisen prior to the commencement of the liquidation, all of which may be sold or assigned by a liquidator pursuant to his power of sale, and on the other hand, powers vested in the liquidator by statute to commence proceedings which only arise upon the winding up and appointment of the liquidator. Counsel submits that the distinction is well established and that it is consistent with the judgment in Ruttle, and on the facts herein, the special liquidators are exercising a power of sale of assets of the company i.e. the debt due on the facilities advanced to the defendant. As put by Ramsay J. in Ruttle, an intrinsic part of the sale is a cause of action or right to commence or continue proceedings to recover the property or asset being sold.
36. Counsel for the applicants also drew attention to the judgment of Peter Gibson L.J. in the Court of Appeal in Re Oasis Merchandising Ltd. (C.A.) [1998] Ch. 170. Those proceedings concerned an assignment of the fruits of an action commenced by a liquidator against five directors under s. 214 of the Insolvency Act 1986, for wrongful trading. The company had no assets and the creditors were unwilling to fund the proceedings. The equitable assignment was made in return for the assignee agreeing to fund the action. The liquidator was to conduct the proceedings and any settlement negotiations were to be in accordance with the requirements and directions of the assignee, a litigation support company. The directors sought to stay the action on grounds that it was champertous and an abuse of process. An issue arose in the proceedings as to whether the fruits of wrongful trading proceedings were “the company’s property” or not. At p. 181, Peter Gibson L.J., having considered a number of the statutory provisions and prior cases, stated:
“Considerations such as these lead us to consider whether a distinction should not be drawn between assets which are the property of the company at the time of the commencement of the liquidation (and the property representing the same), including rights of action which arose and might have been pursued by the company itself prior to the liquidation, and assets which only arise after the liquidation of the company and are recoverable only by the liquidator pursuant to statutory powers conferred on him. The scheme of the Act of 1986 suggests that only the former falls within ‘the property of the company’ which an administrator or administrative receiver or liquidator can sell. Thus a right of action against directors for misfeasance which the liquidator (amongst others) can enforce under section 212 of the Act of 1986 and the fruits of such an action are property of the company capable of being charged by a debenture, because the right of action arose and was available to the company prior to the winding up. But with this can be contrasted the right of action by a liquidator, and the fruits of such an action, for fraudulent preference or fraudulent or wrongful trading, which are not the property of the company and are not caught by a debenture: see Gough, Company Charges, 2nd ed. (1996) p. 122.”
37. Counsel for the applicants submits that a similar distinction exists under the relevant Irish statutory provisions between assets of the company which existed at the commencement of the winding up, including rights of action and proceedings already commenced, and those rights which only arise after or upon the commencement of the winding up and are recoverable by the liquidator pursuant to statutory powers given him. They submit that on the facts herein, the liquidator is purporting to exercise a power of sale of assets of the company and related causes of action and proceedings, all of which existed at the date of the winding up of IBRC.
38. In my judgment the submission made on behalf of the applicants on this issue is correct. Firstly, in a winding up by the Court, an official liquidator is given an express power of sale of all property, real and personal including “things in action” of the company (s. 231(2)(a) of the Act of 1963) which is not subject to prior sanction by the court, though of course pursuant to s. 231(3) it is subject to the control of the court and an application may be made by a creditor or contributory of the company in relation to the exercise of the power.
39. It is not in dispute between the parties that an intrinsic part of the sale of any property is the assignment of any cause of action relating to such property together with “a similar right to commence or continue proceedings” as stated by Ramsey J. at para. 45 of Ruttle.
40. The Companies Acts also distinguish between the powers of a liquidator to commence or continue proceedings in the name of and on behalf of the company and certain types of proceedings which the liquidator brings as the plaintiff or applicant. The former are governed by s. 231(1)(a) of the Act of 1963 and the sanction of the court or, if it exists a committee of inspection is required to commence such proceedings in the name and on behalf the company. This section has been determined also to apply to a decision by an official liquidator to continue existing proceedings in the name of the company: (see Re Greendale Developments Limited (In Liquidation) [1997] 3 I.R. 540). Section 231(1)(a) relates to those type of proceedings where the cause of action is the cause of action of the company and is applicable to such causes of action which existed at the date of commencement of the winding up.
41. The other type of applications or proceedings which may be brought by a liquidator are those in which the cause of action vests in the official liquidator by reason of the order for winding up and his appointment as official liquidator. One such well known example is the right of a liquidator to bring proceedings pursuant to s. 297A of the Act of 1963, for fraudulent or reckless trading of the company. Such an application may only be brought in the course of a winding up (or examinership proceedings under the Companies (Amendment) Act 1990), and by a liquidator (or receiver, examiner or any creditor or contributory of the company). It is not a cause of action of the company and only arises post commencement of the winding up.
42. While s. 231(1)(a) of the Act of 1963 requires an official liquidator to obtain sanction of the court, there is nothing in the section nor in the scheme of the Act of which it forms part which suggests that it should be construed as in any way limiting the express power of sale given to an official liquidator by s. 231(2)(a) to sell all property of the company including things in action which in turn includes causes of action. This applies regardless of whether proceedings have or have not yet been commenced pursuant to the cause of action related to the property being sold.
43. Pursuant to s. 10 of the Act of 2013, s. 231 of the Act of 1963 applies to the liquidation of IBRC subject only to the deletion of subss. (3) and (4) and as if in s. 231(1) the words “with the sanction of the court or of the committee of inspection” were deleted. Whilst these changes remove the role of the court in relation to the special liquidators of IBRC it does not alter the fundamental reasoning as above as to the distinction between the two types of causes of action identified namely the causes of action of the company which existed at the date of the commencement of the winding up and those causes of action vested in the special liquidators which only arise on or after the commencement of the winding up.
44. On the facts of this application the prima facie evidence put before the court is of an assignment by IBRC (in special liquidation) of certain of its property which it held at the date of commencement of the winding up i.e. the debts due on the facilities previously granted to the defendant. Accordingly it follows that the special liquidators did have power and are not precluded from selling such property and as part of such sale, assigning all rights to such property including causes of action and where proceedings in respect of the cause of action have already been commenced, assigning the proceedings.
45. In determining as a matter of law, that the special liquidators had the capacity and are not precluded from selling such property and assigning the causes of action and proceedings, I am not determining in any way the dispute as to the validity or effectiveness of the purported sale or assignment to Stone. That is as already indicated, a matter for another day. However, I am determining that as a matter of law the special liquidators had the capacity to enter into the purported transaction.
Farrell -v- Plastronix Investments Limited
2012 IEHC 418
Finlay Geoghegan J.
“5. There is limited statutory guidance for the determination of liquidators’ remuneration. Section 228 of the Companies Act 1963 provides:
“The following provisions relating to liquidators shall have effect on a winding-up order being made—
. . .
(d) a person appointed liquidator shall receive such salary or remuneration by way of percentage or otherwise as the court may direct, and if more such persons than one are appointed liquidators, their remuneration shall be distributed among them in such proportions as the court directs.”
6. Order 74, r. 46 of the Rules of the Superior Courts provides:
“An Official Liquidator shall be allowed in his accounts or otherwise paid, such salary or remuneration as the Court may from time to time direct and in fixing such salary or remuneration the Court shall have regard to any necessary employment of accountants, assistants or clerks by him. Such salary or remuneration may be fixed either at the time of his appointment or at any time thereafter. Every allowance of such salary or remuneration, unless made at the time of his appointment or upon passing an account, may be made upon application for that purpose by the Official Liquidator on notice to such persons (if any) and shall be supported by such evidence as the Court shall require. The Court may from time to time allow such sum (if any) as the Court shall think fit to the Official Liquidator on account of the salary or remuneration to be thereafter allowed. The Court may direct that an inquiry be held by the Examiner or the Master as to the salary or remuneration of the Official Liquidator and that the Examiner or the Master (as the case may be) do report thereon to the Court. The Master shall have the same powers as the Examiner in conducting any such enquiry.”
7. The discretion given the Court by s. 228 of the Act of 1963 is a wide one. In Re Car Replacements Ltd. (High Court, Murphy J., 15th December, 1999), the judge observed, having quoted s. 228:
“Despite this wide discretion, the practice of the courts has been for many years to determine the remuneration of an official liquidator on the basis of the hours worked by him and his staff. No doubt, this procedure has its own infirmities. There is no scale of the appropriate rate of the remuneration and it is frequently argued that such a system does nothing to encourage expedition in the completion of the winding up of the affairs of a company. In the present case, the Official Liquidator has throughout presented his claim for remuneration on the basis of the hours worked, and it is agreed by Primor and the other Notice Parties who appeared on the application that the rates claimed by the Official Liquidator were appropriate and that no dispute arose as to the hours worked by him and his staff on the winding up of the companies viewed as whole.”
In that decision, at issue was the attribution of the hours worked between 39 companies within the PMPA Group, all being wound up by the Court.
8. The jurisdiction given the Court to direct an inquiry to be held by the Examiner in O. 74,r. 46 is not one which has been exercised in recent times. Counsel drew attention to the Supreme Court appeal in Merchant Banking Ltd. [1987] ILRM 260, in relation to a High Court decision delivered on 29th April, 1985, following such an inquiry.
9. The current practice now for many years has been for liquidators to make applications to the Court for determination of their remuneration based upon a report of the official liquidator setting out the work done by him and his staff in the period for which the fees are sought and to include a list of each member of staff working on the liquidation, their level within the firm and the charge-out rate applied by the relevant accountancy firm in respect of the individual. It has also been the practice to put a creditor likely to be affected by the determination of the remuneration on notice and to request that person to act as a legitimus contradictor. In many cases, this is the Revenue Commissioners as a preferential creditor. In instances where the preferential creditors may be paid in full, normally the largest unsecured creditor will be put on notice. There may be particular reasons in some instances why a different creditor may be chosen.
10. The further established practice is that an official liquidator may apply from time to time throughout the liquidation seeking either determination of his remuneration for a specified period or seeking a payment on account of the amount of the remuneration which he is seeking in respect of that period. Those applications are grounded upon similar reports. In recent years, it has been the prevalent practice only to make orders for payments on account and to leave the final determination of the remuneration to the end of the liquidation. The orders for payments on account are made upon an undertaking from the official liquidator to refund the liquidation in the event that the amount determined is less than the payment on account. Where objections are made to the amount of the remuneration on an application for a payment on account, the Court will sometimes make orders for payments on account of less than the total amount sought. However, even where an order is made for the payment on account of the full remuneration sought, it is not indicative that the Court will fix the remuneration in the amount sought. This is accepted on behalf of the Liquidator herein.
11. In recent years, the High Court has also exercised an analogous jurisdiction in determining the remuneration of examiners appointed pursuant to the Companies (Amendment) Act 1990. Section 29(1) of the Act of 1990 (as amended) provides:-
“(1) The court may from time to time make such orders as it thinks proper for payment of the remuneration and costs of, and reasonable expenses properly incurred by an examiner.”
12. In a number of decisions, commencing with in the matter of Sharmane Ltd. and Others [2009] 4 IR 285, given on 30th July, 2009, the High Court has considered its approach to the determination of remuneration under s. 29 of the Act of 1990, based upon claims for remuneration by reference to time spent and hourly charge-out rates. Whilst those decisions were given in relation to the remuneration of examiners, in practice since 2009, the caselaw has been subsequently relied upon by their official liquidators and applied to the determination of their remuneration by the Court. In In Re Sharmane Ltd., I stated at p. 296:
“35. It is common case that the remuneration sanctioned by the court pursuant to s. 29(1) must be reasonable remuneration in the sense that it must be reasonable both for the examiner and for the companies to which he was appointed. The remuneration sought to be sanctioned is exclusively based upon the time spent by the examiner and his colleagues working on the examinerships, each being costed out at the hourly rate applicable to them in the firm of Hughes Blake Chartered Accountants. Those hourly rates, I assume, in accordance with normal practice, include a profit element for the accountants.
36. There are no statutory criteria according to which the court should determine what constitutes reasonable remuneration for the purpose of s. 29. It does not appear to me that this can be determined by reference only to the total charge out costs computed from the hours spent and relevant hourly rates for the examiner and those working with him. This may, of course, comprise one element to be taken into account in determining what reasonable remuneration is. However, in my view, it should not be the only element, and in determining what is reasonable remuneration the court must also have regard to the nature of the work carried out, the complexity of the work and the importance or value of the work to the client. These would be common elements taken into account by professionals charging or seeking to agree fees with clients.”
13. The principles set out above have been cited with approval by Kelly J. in Re Missford Ltd. [2010] 3 IR 756, in relation to an examiner and in ESG Reinsurance Ireland Ltd. [2010] IEHC 365, in relation to the remuneration of an administrator appointed pursuant to the Insurance (No. 2) Act 1983, and by Clarke J. in Re Marino Ltd. [2010] IEHC 394, in relation to an examiner. In each of these three cases, Kelly J. and Clarke J. addressed the appropriateness of the specific hourly rates set out by the examiner or administrator in respect of himself and the staff of the relevant accountancy firm. The rates allowed have subsequently been applied by official liquidators and allowed by the Court without objection from the Revenue Commissioners in applications in winding ups by the Court. In the current year, the Revenue Commissioners have further reduced hourly rates it considers appropriate in windings up. That reduction does not affect any period to which this application relates.
14. Counsel for the official Liquidator and notice party did not dispute the applicability of the above decisions to this application. Counsel for the official Liquidator did emphasise compliance by the official Liquidator in the preparation and presentation of the reports supporting the applications for determination of his remuneration with the established and accepted practice of the Court. He submitted that if the Court were now going to require further or additional material, that any such requirement should be clearly indicated and applied prospectively. I accept that submission subject to the following. Since the delivery of the judgment in Re Sharmane Ltd., it has been clear that the Court, in determining the remuneration of persons appointed as examiners, administrators or official liquidators, will not determine the reasonable remuneration by reference only to the total charge-out costs computed from the hours spent and relevant hourly rates, but will also have regard to:
(i) the nature of the work carried out; and
(ii) the complexity of the work; and
(iii) the importance or value of the work ‘to the client’.
In Re Sharmane Ltd., the client was the company as an examiner was appointed to it on the basis that it was a company with a reasonable prospect of survival as a going concern. In a liquidation, the client is not the company. Insofar as the primary obligation of a liquidator in most liquidations is the realisation of the assets of the company and their distribution to those entitled on a winding up in accordance with the relevant priorities, it appears to me that in the sense used, the ‘client’ in a liquidation are those persons entitled on a distribution of the assets of the company in accordance with statutory priorities. There is, in general, the added complication in a liquidation that not all work which a liquidator is required to do may be of importance or value to those entitled on a distribution of the company’s assets. In making this comment, I have in mind, in particular, the obligations imposed on a liquidator pursuant to s. 150 of the Companies Act 1990, and s. 56 of the Company Law Enforcement Act 2001, in relation to making reports to the Director of Corporate Enforcement and bringing applications for declarations of restriction of former directors of the company in liquidation. In the context of a winding up, it appears to me that one would have to add, as a relevant matter, compliance by the liquidator with statutory or regulatory obligations. This latter matter is not something of importance on the facts herein.
15. Current practice does not expressly require an official liquidator to break down in any precise way the time spent on different elements of the work conducted by him and his staff in the course of the winding up. Order 74, r. 46 of the Superior Court Rules does require an official liquidator to support a fee application with “such evidence as the Court shall require”. Some official liquidators, in my experience, have provided schedules with a breakdown on time per topic. There may be time-recording systems which permit this to be simply done. However, it is not the norm.
16. It is important to try and keep an appropriate balance between requiring a liquidator to put sufficient information before the Court that it (and any creditor acting as legitimus contradictor) can form a view on what is reasonable remuneration, having regard to the above elements, and not imposing such detailed requirements as will involve extra work and expense to the liquidation. Official liquidators include in their remuneration claims the time spent on the preparation of reports for the Court which support applications for the determination and payment of remuneration and have been allowed same.
17. As observed by Murphy J. in 1999 in Re. Car Replacements Ltd., the current system which is still significantly based upon time spent and charge-out rates “has its own infirmities”. However, the real problem is to come up with a better system which of itself is not overly time consuming and expensive and results in the Court being in a position to fix remuneration which is reasonable, both for an official liquidator and reasonable for the creditors of the Company. Insofar as the approach of the High Court since the decision in Re Sharmane Ltd. in 2009 has sought to add to the consideration by the Court the nature, complexity and importance or value of the work done for the creditors or other persons entitled on a distribution in the winding up, albeit in a context where the starting point is the computation of the remuneration based upon time spent and the relevant charge-out rate, the statements of principle cited with approval by Laffoy J. in Re Redsail Frozen Foods Ltd. (In Receivership) [2007] 2 IR 361, from Ferris J. in the English High Court in Mirror Group Newspapers plc. v. Maxwell [1998] BCLC 638, at p. 652, are of assistance. In particular, in that decision, where he was fixing the remuneration of receivers appointed to the M.G.N. Group in relation to hourly rates and time spent, he stated, “. . . time spent represents a measure not of the value of the service rendered, but of the costs of rendering it. Remuneration should be fixed, so as to reward value, not so as to indemnify against cost. .” I would agree with the distinction made between the value of work done and the cost of rendering it. Persons who have worked as professionals are aware of the truism that there is not a direct correlation between the value to a client of work done and the time spent by the professional person in producing the work. All have experienced differences of approach between professionals, who, in theory, are at the same level (have same charge out rate), one of whom may, in half the time of the other, produce work of greater value for a client. In determining an official liquidator’s remuneration, it is appropriate to have regard to the value of the work and also, separately, to the cost of rendering it.”
In the Matter of Haydon Private Clients Ltd
2012 IEHC 505
Finlay Geoghegan J.
“10. The Liquidator’s application is, consistent with current practice, based upon his reports in relation to the work done and includes in appendices the breakdown of the time spent by him and those in his firm working on the liquidation with their relevant hourly charge out rates. The Liquidator, in his grounding affidavit, has set out in some detail the work done in the liquidation. The Liquidator also deposes that he delegated work to persons having the appropriate skills to deal with same; and that the fees represent charges which his firm makes in the ordinary course of its professional practice to its clients for services of the type required. Further, he deposes that “the charge out rates in respect of each member of staff who has worked on this liquidation have been reduced in line with the reductions approved by the Court in the cases of Re Missford Ltd. t/a Residents Members Club [2010] IEHC 240, [2010] 3 IR 756, and Re ESG Reinsurance Ireland Ltd. [2010] IEHC 365”.
11. The Steering Committee objected to the amount of the remuneration being sought, particularly in respect of the second period. The Steering Committee does so, firstly, by reason of an estimate of fees and costs to completion of the liquidation which was given to it by the Liquidator, initially in April 2011, and repeated in June 2011, in the context of the settlement negotiations. The total figure for Liquidator’s remuneration and legal costs to completion of the liquidation was then estimated at €125,000. It is common case that at the time, no breakdown between the Official Liquidator’s remuneration and the legal costs had been given. However, shortly prior to this application, a breakdown was furnished by the Liquidator’s solicitors according to which the estimate of legal costs to completion included €85,000 and Liquidator’s remuneration was €40,000. That breakdown is not disputed by the Liquidator. The figures used are VAT exclusive.
16. In a judgment delivered on 9th October, 2012, in the matter of Re Mouldpro International Ltd. (In Liquidation) [2012] IEHC 418, I set out the principles applicable to the determination of an official liquidator’s remuneration having regard to a number of High Court decisions including in Re Car Replacements Ltd. (Unreported, High Court, Murphy J. 15th December, 1999), Re Sharmane Ltd. & Others [2009] IEHC 377, [2009] 4 IR 285, Re Missford Ltd. [2010] IEHC 240, [2010] 3 IR 756, ESG Reinsurance Ireland Ltd. [2010] IEHC 365, [2011] 1 I.L.R.M. 197, Re Marino Ltd. [2010] IEHC 394, and Re Redsail Frozen Foods Ltd. (In Receivership) [2006] IEHC 328, [2007] 2 IR 361, particularly in the context of the current practice of official liquidators seeking to have remuneration fixed by reference to the hourly charge out rates applicable to individuals and the time spent. I do not propose repeating those principles in this judgment. I summarised the position in Mouldpro at para. 14 as being that:
“. . . the court, in determining the remuneration of persons appointed as examiners, administrators or official liquidators, will not determine the reasonable remuneration by reference only to the total charge-out costs computed from the hours spent and relevant hourly rates, but will also have regard to:
(i) the nature of the work carried out; and
(ii) the complexity of the work; and
(iii) the importance or value of the work ‘to the client’.”
17. In Mouldpro, I also drew attention to the distinction to be made between the value of work done and the cost of rendering it and to what was said by Ferris J. in the English High Court in Mirror Group Newspapers plc. v. Maxwell (No.2) [1998] 1 B.C.L.C. 638, at p.652, where, in the context of fixing remuneration of receivers appointed to the MGN Group in relation to hourly rates and times spent, he stated:
“. . . time spent represents a measure not of the value of the service rendered, but of the cost of rendering it. Remuneration should be fixed, so as to reward value, not so as to indemnify against cost.”
My own conclusion, as expressed, which is relevant to this application, is that in determining an official liquidator’s remuneration, it is appropriate to have regard to the value of the work and also, separately, to the cost of rendering it. The computation of the remuneration claimed in accordance with time spent and hourly charge out rates is the cost of rendering the service by the official liquidator and his firm. Cost in this sense also includes a profit element for the firm in question.
18. In this application, the above are the primary principles according to which the Court must determine the amount of the remuneration for the Official Liquidator. The amount must also be reasonable both for him and for the creditors of the Company. There is an added special consideration on the facts herein. The Court should have regard to the estimate given by the Official Liquidator in April and June 2011. This was an estimate given in the course of the liquidation upon which the Steering Committee was entitled to rely. For the reasons already stated, I accept that there was, through error, an underestimate in respect of the unpaid element of the Liquidator’s remuneration and legal costs up to 12th November, 2010. I propose taking that error into account in any comparison between the estimate given and fees which the Court is asked to measure. However, insofar as the Liquidator gave, lastly, in June 2011, an estimate intended to cover monies which would have to be paid out in respect of work done since November 2010, to the completion of the liquidation, the Court should have regard to same. I am not satisfied on the affidavits that there is evidence of any significant work which was required to be done between November 2010, and November 2011 which was not predictable by the Liquidator in June 2011.
Conclusions
25. As it appears in para. 6 of this judgment, I am asked to determine the remuneration in respect of two distinct periods. The first period is from 20th July, 2009, to 12th November, 2010, in which the sum sought for remuneration inclusive of VAT and outlay is €128,226.74. It appears from the papers that the amount of remuneration sought exclusive of VAT and outlay is €103,778.75 of which €31,425.59 (exclusive of VAT) remains unpaid to the Liquidator. This is the amount which, in error, was omitted from the Liquidator’s estimates. I propose determining the remuneration for this period in the sum of €93,778.75 plus the outlays as claimed of €2,193.76 plus VAT. This is a reduction of €10,000 in the net remuneration sought. I have made this reduction essentially for two reasons. Firstly, the period includes 2010, the year during which the remuneration claimed in a number of decisions in the High Court was reduced by differing percentages. The partner charge out rate claimed in this liquidation for 2010 is in excess of the amount allowed in Re Missford Ltd. [2010] IEHC 240, [2010] 3 IR 756, and Re ESG Reinsurance Ltd. [2010] IEHC 365, [2011] 1 I.L.R.M. 197. Secondly, whilst the unpaid balance of €31,425.59 was excluded from the estimates given in error, it represents, in the context of this liquidation, a relatively significant additional sum which the Liquidator is now seeking to have paid out of the liquidation and thereby reducing the distribution available for unsecured creditors, including those persons involved in the Steering Committee. It appears that I should have some regard to this albeit on the basis that it was a genuine error.
26. In respect of the period from 13th November, 2010, to 13th November, 2011, the Liquidator seeks to have his remuneration determined at €42,097.75 plus outlay and VAT. I propose determining the remuneration for this period at €27,097.75 plus outlay and VAT as claimed i.e. making a reduction of €15,000. I have done this in accordance with the principles set out above and having regard to the estimate given by the liquidator for the following reasons.
27. The estimate given, at latest in June, 2011 for remuneration to completion of the liquidation was €40,000. I have concluded on the affidavits that there was not significant work in the intervening period prior to November, 2011 which could not have been envisaged by the Liquidator. The liquidator in an estimated outcome for the liquidation as of 23rd February, 2012, estimates the remuneration to completion presumably for the period after 13th November, 2011, at €25,000. Taking into account that the Liquidator’s figure of €40,000 was an estimate, it appears to me that an increase of approximately 20% might have been reasonable in the absence of any clearly identified unenvisaged additional work, taking the estimated figure to circa €50,000. Allowing for the further €25,000 estimated to completion in February 2012, this would leave €25,000 for the period up to 13th November, 2011. I have allowed slightly in excess of that.
28. The second reason for which I have made the deduction is that objectively it appears to me having regard to the value of the work done that it was being charged by the Liquidator at excessive charge out rates, having regard both to the promotion of three individuals working in the liquidation and the fact that no reductions were made in the relevant charge out rates for directors, managers, seniors and semi-seniors following the High Court decisions in 2010.
Home Payments Limited & Companies Acts: Leahy & anor
[2013] IEHC 507
Finlay Geoghegan J.
!17. There was no substantive disagreement on the first issue relating to the work undertaken by the joint liquidators having regard to the judgment in Custom House Capital Ltd. (In Liquidation) [2012] IEHC 382, and the views expressed at paras. 39 to 43 inclusive. An analogous issue arose in the winding up of Custom House Capital ltd. (CHC) which held client funds under its control but which were not part of the assets of CHC. Counsel did not submit that there should be any different approach in principle to that expressed in the judgment in CHC.
18. As determined therein, in my judgment, the role and duty of an official liquidator is to conduct “a proper and orderly winding up of the affairs of the Company”. This appears to be confirmed by the terms of s. 249 of the Companies Act 1963. Whilst I recognise that many descriptions of the duties of a liquidator refer to the administration of the assets of the company, and in particular, their realisation and distribution of the proceeds to those entitled, I expressed at para. 41 the following view which remains my view:
“However, it appears to me that what is required of a liquidator to wind up the affairs of a particular company will always depend upon the nature of the business or other activity conducted by the company prior to the making of the winding up order.”
(2) Jurisdiction of Court to order Payment of Costs out of Customer Monies
20. The joint liquidators submit that the Court has a jurisdiction to make an order that some or all of the liquidator’s remuneration, legal costs and other expenses be discharged out of the customer monies in reliance upon its equitable jurisdiction and the approach taken by the High Court in England in Re Berkeley Applegate (Investment Consultants) Ltd. [1988] 3 All E.R. 71, other decisions which followed that case and the approach of the Supreme Court of New South Wales in Re G.B. Nathan & Co. Pty Ltd. (In Liquidation) [1991] 24 N.S.W.L.R. 674. Counsel for the customer committee does not dispute that the Court does have such a jurisdiction. However, he submits that it is a jurisdiction which should be exercised sparingly and, relies upon the principles requiring the Court to be vigilant in sanctioning liquidator’s fees. He submits that under s. 244 of the Act of 1963, the Court has a discretion in relation to the priority of fees payable out of assets of the Company and challenges the priority contended for by the joint liquidators in this application.
21. In Custom House Capital, the same English and Australian decisions were relied upon by the official liquidator in support of the equitable jurisdiction which he sought to have the Court to exercise in that case. In the judgment, whilst I considered the law opened to me and made some observations which must be considered obiter, on the facts in Custom House Capital, I determined that CHC did not hold any of the assets at issue (segregated equities and cash funds) on trust for any of the dissenting clients. The relevant contractual documents expressly provided that CHC was not acting as trustee. Also, in that case, CHC was an investment business firm for the purposes of the Investment Intermediaries Act 1995 (as amended) and the Investor Compensation Act 1998, and, consequently, there are express statutory provisions in relation to the jurisdiction of the Court to have recourse to client funds for the payment of a liquidator’s fees and expenses. The Company is not subject to those statutory provisions or any which give the Court an analogous jurisdiction. Hence, it is necessary for me to determine, for the purposes of this application, whether the Court has jurisdiction to make an order for the payment of any remuneration costs or expenses of the joint liquidators out of the customer monies.
22. In the judgment in Custom House Capital, I considered the English and Australian authorities to which I was referred both in that case and again this application. No submission has been made in this application which leads me to alter the views previously expressed in relation to those judgments and it therefore appears appropriate to repeat what I stated at paras. 55 to 64 inclusive of the judgment in Custom House Capital.
“55. Counsel for the Liquidator primarily contends that this Court has a jurisdiction to make an order that the Liquidator’s fees be discharged out of the client assets in reliance upon its equitable jurisdiction and the approach taken by the High Court in England in Re Berkeley Applegate (Investment Consultants) Limited [1988] 3 ALL E.R. 71, and in a number of decisions which followed that case. In that case, the company in liquidation carried on the business of receiving money from investors and then investing those monies in mortgages in the name of the company. At the commencement of the voluntary winding up, the company held a number of mortgages and sums of money. The Liquidator initially brought an application for directions as to whether the mortgages and certain sums of monies were held on trust. It was determined that the mortgages and certain sums of monies were held on trust for the investors. The Liquidator had done substantial work in relation to the mortgages and trust monies which was to the benefit of the investors. The assets of the company were considered insufficient to meet his remuneration and expenses and it was found that he was entitled to be paid out of the trust monies. Mr. Edward Nugee Q.C. (sitting as a deputy judge of the High Court) stated at p. 83:
‘The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in Re Marine Mansions Co (1867) LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt (1808) 14 Ves 438, [1803–13] All ER Rep 216), and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Boardman v Phipps [1966] 3 All ER 721, [1967] 2 AC 46).’
56. As appears from p. 84 of the judgment, the declaration made by the trial judge was that ‘the liquidator is entitled to be paid his proper expenses and remuneration out of the trust assets if the assets of the company are insufficient’. He also made clear that he was not, in that decision, deciding how the expenses and remuneration should be borne as between the company’s assets and the trust assets.
57. There was a subsequent application on that latter issue in which a judgment was given by Peter Gibson J., namely, Re Berkeley Applegate (Investment Consultants) Ltd. (No. 3) [1989] 5 BCC 803. In that judgment, he rejected the contention that any part of the expenses and remuneration which the liquidator was awarded by the Court in respect of work done in administering the trust property which the company held as trustee could be payable out of the company’s assets pursuant to s. 115 of the Insolvency Act 1986. This provides:
‘All expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company’s assets in priority to all other claims’.
Peter Gibson J., at p. 805, stated:
‘The point, to my mind is a short one, and largely one of first impression. Looking at sec. 115, for my part I have no doubt that the remuneration of the liquidator for administering trust assets which are not the assets of the company and the costs and expenses incurred by the liquidator, again not in getting in or paying out or distributing the assets of the company, but in administering trust assets, are outside the wording of the section. To my mind, it is clear that the section is simply dealing with the winding up of the company, involving as it does the getting in of the assets of the company, ascertaining its creditors, paying its liabilities in accordance with the statutory provisions and distributing any surplus. I do not think that on an ordinary reading ‘expenses properly incurred in the winding up, including the remuneration of the liquidator’ would include expenses and remuneration which the liquidator has incurred and has been awarded by the court in respect of the work he has done administering the trust property held by the company as trustee, and in my judgment the section must be construed as limited to the liquidator’s expenses in, and remuneration for, dealing with assets of the company. Take the reference to the remuneration of the liquidator. There is no doubt to my mind that that does not include what the court in its inherent jurisdiction has awarded to the liquidator in respect of the work he has been doing not as liquidator but as trustee in administering the trust assets. Similarly the other expenses that are referred to as being incurred in the winding up cannot be expenses in relation to what are not the assets of the company’.
58. I accept that whilst the wording of s. 115 of the Insolvency Act 1986, is in different terms to that in sections 228(d) and 244 of the Act of 1963, in substance, they are similar. In this jurisdiction, the Court has jurisdiction pursuant to those sections to make orders that all expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company’s assets in such priority as it directs.
59. As appears fundamental to the reasoning of Peter Gibson J. is that the work done by the liquidator in that case in administering the trust property was not work done as liquidator in the winding up of the company, and accordingly, could not be the subject of an order under s. 115 of the Insolvency Act 1986. Insofar as Peter Gibson J. expressed the view that a winding up only involves the getting in of the assets of the company, ascertaining its creditors, paying its liabilities and distributing a surplus, I respectfully disagree for the reasons already set out.
60. The broader view of a liquidator’s tasks which I have taken is similar to that taken by McLelland J. in the Supreme Court of New South Wales in Re G.B. Nathan & Co. Pty Limited (In Liquidation) [1991] 24 NSWLR 674. In that application, the liquidator sought directions pursuant to s. 479(3) of the relevant corporation law as to whether he was entitled or bound to deal with certain monies and securities held on trust by the company for certain of its clients and as to whether the liquidator was entitled to deduct there from the costs, charges and expenses of the winding up.
61. On the latter issue, the judge considered the two English High Court judgments in Re Berkeley Applegate (Investment Consultants) Limited , and having referred to the extract from the judgment of Peter Gibson J. referred to above, stated at p. 688:
‘I do not consider that the distinction between work done and expenses incurred by the liquidator in the winding up, on the one hand, and work done and expenses incurred in administering property held by the company as trustee, on the other hand, can be drawn as easily as this passage may suggest. In the first place, it is clearly the duty of a liquidator for the purposes of the winding up to identify the assets of the company, and in particular to ascertain whether particular assets under the control of the company are beneficially owned by the company or by others. Secondly, in fulfilling his function to ‘do all such . . . . things as are necessary for winding up the affairs of the company . . .’ (see s. 477(2)(m) of the Corporations Law and cf s 479(4)), the liquidator cannot disregard the fact that the company holds property in trust for others’.
62. The above view is closer to the view which I have formed on the facts of this application in relation to what a liquidator must do to wind up the affairs of a company than that formed by the English judges in Re Berkeley Applegate (Investment Consultants) Limited.
63. McLelland J. further concluded at p. 689:
‘Where work done by a liquidator in relation to trust assets may properly be considered as having been done for the purpose of “winding up the affairs of the company”, it is I think consistent with general principle that any remuneration and expenses attributable to that work be paid out of the (non-trust) property of the company in accordance with s. 556 of the Corporations Law, to the extent that there is such property available. To the extent that there is not sufficient available property, bearing in mind that generally speaking “a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property” (s. 545), it would normally be appropriate to apply the principle referred to by Deputy Judge Nugee Q.C. in the passage quoted earlier from Re Berkeley Applegate (Investment Consultants) Ltd (In Liq) and make an allowance to the liquidator out of trust assets. In the present case, there is nothing to suggest that there is any relevant insufficiency of available property of the company to meet the liquidator’s remuneration and expenses. The evidence suggests that there are realisable assets available to the liquidator of the order of $100,000. Accordingly there is no occasion for any allowance for the liquidator’s remuneration and expenses to be made from the trust assets’.
64. As appears, he held that the liquidator’s remuneration and expenses for work in relation to the trust assets were first to be paid out of the company assets and it was only if they were insufficient that he would apply the principle referred to by Deputy Judge Nugee Q.C. Further, his willingness to apply the equitable principle is on the basis of an Australian statutory provision that ‘a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property’. There is, of course, no similar statutory provision in our Companies Acts.”
23. As previously explained, I determined in Custom House Capital that the Court did not have jurisdiction to make the order sought by reason of the fact that the assets in question were not trust funds and the relevant statutory provisions. By reason of that conclusion, it was unnecessary for me to determine in Custom House Capital whether or not the Court does have jurisdiction to make an order as is sought in this application.
24. In this application, it is agreed that the customer monies are monies held in trust by the Company (in liquidation) for the customers. At the date of the commencement of the winding up, the monies were in a bank account in the name of the Company. The joint liquidators took custody of same and by agreement with AIB, the monies were transferred to the joint liquidators’ account. The joint liquidators have properly accepted that these are trust monies. They accept that the monies should be distributed to the customers. However, if the joint liquidators had either disputed the status of the customer monies or it had been determined that the matter lacked clarity and required a formal determination by the High Court, then this would have required a customer or group of customers to seek a determination from the High Court of their beneficial entitlement to the return of the monies. In doing so, they would be asking the Court to exercise its equitable jurisdiction to make a determination in their favour. This has not been done in this liquidation, in part by reason of the desire of the joint liquidators and the Court to keep legal costs to a minimum. Notwithstanding the absence of any such formal application, insofar as the Court has been giving directions or approval by way of sanction to the proposed action of the joint liquidators in relation to the distribution of the client monies, it appears that the Court must be considered as exercising its equitable jurisdiction, albeit alongside its supervisory role in a compulsory winding up. Hence, it appears to me that in accordance with the general principles set out by Mr. Edward Nugee Q.C. (sitting as the deputy judge of the High Court) in Re Berkeley Applegate (Investment Consultants) Ltd. cited above, that the Court has a discretion, in giving directions as to the distribution of the customer monies to the customers of the Company, to require as a condition that an allowance be made for some costs and expenses in connection with the administration of the trust property. I also agree with his conclusion that this is a discretion which should be sparingly exercised and that the Court should have regard to the fact that if the work had not been done by the joint liquidators in this case, whether or not it would have had to have been done by some other person in order to give practical effect, i.e. procure the appropriate distribution, to the persons entitled to the equitable interest. Hence, on the second issue, I find that the Court has a jurisdiction and a discretion to make an order for the payment of an allowance in respect of the joint liquidators’ remuneration, legal costs and expenses incurred in connection with the work done relating to the proper distribution of the customer monies. However, as appears from my next consideration, I respectfully disagree with the subsequent approach of the English High Court in Re Berkeley Applegate (Investment Consultants) Ltd. (No. 3) insofar as that judgment determines that work done by a liquidator in administering trust property under the control of a company in liquidation is not work done as liquidator in the winding up of the company.
25. For the reasons already set out, I have determined that the work done by the joint liquidators herein in relation to the customer monies is work which they were required to do as joint liquidators for the proper and orderly winding up of the Company. This is directly relevant to the question of how the Court should exercise the jurisdiction and discretion I have found to exist.